South Korea’s $1.7 billion ETF wipeout: What Indian investors should know about leverage bets
Retail investors are estimated to have lost 2.3 trillion won ($1.7 billion) from leveraged exchange-traded products tracking South Korea’s two chipmaking giants in just months, according to a lawmaker’s office, in the first revelation of the magnitude of risks from such bets.
Clients of 10 Korean brokerages incurred the losses from single-stock ETFs and notes tied to Samsung Electronics Co. and SK Hynix Inc. between May 27 and Aug. 14, according to the office of Choi Eun-seok, a lawmaker from the opposition People Power Party.
The losses followed a surge in leveraged bets on South Korea’s AI-centric stock market. The wild swings caused by the risky products have since prompted regulators to cool the fervour among mom-and-pop investors, resulting in a plunge in trading volume.
Here's a look at what the leveraged ETFs are, why they are risky and what Indian investors can learn from South Korea's markets
Leveraged ETFs aim to deliver multiples of an underlying stock's or index's daily returns.
"They promise two or three times the daily return of a stock or index. The keyword is daily. The fund resets its exposure every single day, so over a month, it does not give you 2x the return. It gives you 2x of each day's move, compounded. Retail investors buy it as a long-term turbocharged version of the stock. It is a trading instrument with an expiry built into its maths," said Sidharth Sogani Jain, founder, CEO and fund manager at Blue Aster Capital and CREBACO Global.
But, most investors often miss out on the math.
"Take a stock that rises 5% and falls 5% on alternate days for ten trading days. The stock ends down about 1.2%. A 2x ETF ends down about 4.9%, and a 3x ETF ends down nearly 11%. The stock went nowhere, and the 3x fund lost about nine times as much. That is volatility decay. The recovery maths is worse. A fund that falls 82% needs a gain of roughly 456% just to get back to where it started."
Institutions use leveraged ETFs for positions measured in days, sized at a small slice of the book and watched daily. They become dangerous in four situations:
- when held for months
- when bought after a sharp rally
- when funded with borrowed money
- when they grow into a large share of the portfolio
- If you cannot watch the position every day, you should not own it.
According to Jain, retail investors bought about 14 trillion won ($9.4 billion) of single-stock leveraged ETFs, while holding around 92% of the assets in products linked to Samsung and SK Hynix.
When the market reversed in July, SK Hynix fell about 35% and Samsung Electronics about 21%, Jain said. By 29 July, the largest 2x SK Hynix fund had lost about 82% from its June peak.
But, regulation came after the damage
"Korean regulators raised the minimum cash deposit for these products from 10 million won to 30 million won and made education and mock trading compulsory. But by August, nearly $1 billion had already left the Samsung and SK Hynix leveraged funds in a single month. Regulation usually arrives after the losses, not before," he added.
Indian investors face similar risks through futures and options (F&O), where leverage can magnify losses.
SEBI's study found that over 91% of individual derivatives traders lost money in FY25. Their net losses rose 41% in a year, to about ₹1.06 lakh crore. Indian investors can also access US-listed leveraged funds through overseas platforms.
"Conviction in AI or semiconductors is not a reason to use leverage," Jain said. For long-term exposure, diversified ETFs or the underlying stocks may avoid the additional compounding risks of daily-reset leveraged products.
Sanchari Ghosh is an Assistant Editor at Mint with over 12 years of experience in journalism, specialising in personal finance, DLT & DeFi, geopolitics and foreign policy, with a particular emphasis on how these areas intersect. <br> She writes extensively about how money works in everyday life—helping readers navigate personal finance decisions. <br> As AI reshapes investing behaviour, capital is increasingly flowing into decentralized ecosystems, redefining how assets are managed, traded, and valued. She focuses on explaining how money flows within frameworks like Distributed Ledger Technology (DLT), DeFi protocols, and crypto markets—while also exploring what the future of money could look like in a trustless, programmable financial world. <br> She also focuses on immigration-related issues, simplifying complex topics around visas, passports, overseas financial planning, and the many practical challenges Indians face while moving or living abroad. <br> Alongside personal finance, Sanchari has a strong understanding of international politics, contemporary and historical conflicts, and global state decisions. She closely tracks how geopolitical developments influence economies, markets, and individual financial choices, bringing together finance and global affairs in her reporting. <br> She began her career as a desk editor, which gave her a strong foundation in news writing. Over time, her interest naturally shifted toward personal finance. Before joining Mint in 2020, she worked DNA, The Times of India, Outlook Money, BloombergQuint, and ETMoney. At Mint, she got an opportunity to expand her coverage to include immigration and geopolitical developments while continuing to closely follow personal finance trends and market movements.As a journalist, she is committed to accuracy, intellectual rigour, and fairness. <br> She is an English Major and her work took her across cities including Delhi, Mumbai, and Pune. Living independently from an early age gave her firsthand experience in managing life and money on her own. This practical exposure sparked her strong interest in personal finance. <br> Outside the newsroom, Sanchari is a sports enthusiast who regularly plays lawn tennis and squash. In her younger years, she was also a national-level badminton player.
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